Princeton endowment to divest from fossil fuel companies

Princeton University is to cut financial ties with fossil fuel companies in its endowment portfolio.

The move will see companies including ExxonMobil, Glencore and Mercator “dissociated” from the university following a decision made by the fund’s trustees in 2021.

Ninety companies will be removed, all active in the thermal coal or tar sands segments of the fossil fuel industry – areas Princeton describes as “the sector’s largest contributors to carbon emissions”.

Andy Golden, president of the Princeton University Investment Company, said in a statement: “While the economy in which we invest will necessarily be entangled with fossil fuels for decades to come, removing public equity exposure to oil and gas companies is a meaningful step toward the university’s long-term goals.”

The move follows the recommendation on fossil fuel divestment in a report by the university’s Faculty Panel.

The university opted to back the idea in the absence of “quantitative standards” and the risk of “disinformation” within the fossil fuel sector. The school also notes its commitment to “embracing the vigorous exchange of ideas”. 

However, some of the companies on the 90-strong list have financial relationships with Princeton. ExxonMobil, for example, provides financial support to research at Princeton’s Andlinger Center for Energy and the Environment.

The university will also establish a new fund to support energy research at Princeton, in part to offset research funding no longer available because of the dissociation.

Research partnerships with dissociated companies that do not involve a financial component will still be permitted by the university.

Princeton is also writing to companies on the list to offer them an opportunity to demonstrate how they might settle its concerns.

The endowment, which held $37.7bn in assets as of June 2021, is the latest US college to opt to divest from the fossil fuel industry. Harvard committed to divest from fossil fuels in September 2021, while the University of California completed a $1bn divestment from fossil fuels in May 2020.

Brown University also divested from fossil fuels in March 2020.

Divestment dilemma

Divestment is likely to gain momentum among institutional investors in the coming years, according to Mhairi Gooch, senior responsible investment consultant and net-zero lead at pensions consultancy Hymans Robertson.

“For asset owners, a key risk is stranded assets. Fossil fuels are in that category, and increasingly risky as renewables become cost competitive,” she says.

The US Climate Bill, passed in August, is a “real tailwind for clean energy” and could “accelerate the stranding of fossil fuel assets,” Gooch adds.

But cutting financial ties with fossil fuel companies removes the asset owners’ ability to exercise stewardship and influence. And therein lies a potential danger, suggests Gooch, because “divesting simply transfers ownership to other investors that fail to use voting rights and engagement with companies to support the transition to net zero”.